Excessive housing costs continue in spite of land releases

For the benefit of the  odd Cat person who does read the Herald Sun I have an article on land planning and housing costs in this morning’s edition (the print edition was edited and a bit garbled at the end).

The government seems to think that if it expands the urban growth boundary it will increase land supply and prices will reflect costs.  Costs, due to government imposed land supply constraints, are $100,000 above the free market level in Melbourne – more in Sydney and about the same in other mainland state capitals.  Freeing up supply is a good starting assumption but the problem is the array of other regulations (over 600 individual ticks required before a house is completed).  And even when a housing minister seeks to reject the cacophany favouring land starvation from planners, academics, Age journalists, developers who hold land bought at excessive prices, and others all that happens is that the releases gets bogged down in the next regulatory tier.

This is an issue that seems to cut across party lines.  Liberal Minister Greg Hunt has boasted of how he, following in his father’s footsteps, has thwarted land development in southern Melbourne.  And inded, the present Minister, Mathew Guy, while expanding the growth boundary as a whole, has cut it back in areas where politically powerful voices are especially loud.  Opposition is from two directions: those who want to force a compaction of urban areas so that they will all look like an idylic but inaccutate picture of Paris or New York with an abundance of theatres, chic cafes and so on; then there are those who oppose because they don’t want the urban footprint enlarged – sometimes arguing, as does the Commonwealth Iinfrastructure Department, that the city edge is vital for food prodcution (I’ll eat my own cucumbers if more than 1% of urban food supply comes from the farms on the periphery).

The outcome is a vast distortion of supply which is ok for thoose owning theri own home but disasterous for those who aspire to do so but are priced out.  Democracy at work?

 

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28 Responses to Excessive housing costs continue in spite of land releases

  1. NoFixedAddress

    As a pensioner who sought to spend time overseas to live in a modicum of decency and has now been bought to heel by my ‘masters’ interpretation of residency I can tell you that the cost of housing regulations is up there with some of the best corruption measurements of any so called 3rd world country.

    It is a National Disgrace!

  2. The new TUP’s ‘Macquarie Dictionary’ definition, previously known as ‘Mob Rule’…

    I did hear a joke once: “When the US IT bubble bust all that was left was The Internet, when the Australian property bubble bursts all that will be left is overpriced housing in Sydney.”

    The Australian property industry is such a millstone around our neck, think of how rich we could all be if we didn’t have to support the bloated structure and chronic overvaluation of assets. A textbook example of the evils of Government interference.

  3. .

    So, this is like getting rid of export licences but keeping stiff export taxes.

    Which is of course, extremely silly.

  4. johanna

    And they keep piling them on.

    The People’s Democratic Republic of the ACT, which has been captive to Green balance of power holders, is continually introducing new regulatory requirements to force us into their ‘green’ and ‘sustainable’ model.

    Meanwhile, actual building standards are a Wild West, with shoddy construction, disappearing builders, phoenix companies and crappy insurance schemes leaving punters in the lurch.

    We manage to get the worst of both worlds here.

  5. Gab

    If this was a business operating in the same way as the grubbyment, it would be charged with extortion.

  6. jumpnmcar

    The latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index showed activity improving to an index of 37 in November, up from 35.8 the previous month.

    Readings below 50 indicate a contraction in the industry with the distance from 50 indicative of the strength of the decline.

    The reading for November is the 30th straight month that the index has contracted.

    HIA chief economist Harley Dale says;

    “Governments, led at the federal level, need to engage in meaningful taxation reform and other policies that will enhance productivity performance,” Mr Dale said.

    “The federal government also needs to soften its stance on a move back to surplus at all costs in 2012/13 as this goal is damaging the prospects of a construction recovery and a successful rebalancing of growth in the Australian economy from 2013.”
    Coincidentally, Gillard became PM in June 2010. 30 months ago.
    She has not presided over one single month of growth in my industry, not one, despite the money they have spent.

    If this was Abbotts’ record the CFMEU would be in the media screaming.

  7. MattR

    The facts and figures are all analysed here (more on the site regarding this issue):

    http://www.macrobusiness.com.au/2011/09/housing-supply-australia-look-to-texas-to-solve/

    Essentially, it shows how States in the US that had free-market policies around housing and land development, never experienced a bubble, have stable land prices and (if you look it up) are actually the strongest state economies in the US right now. These states ALL had the same financial system that other states did.

    You can also see that the states with the most regulations around land development had the biggest prices rises, as well as the biggest price falls (all predominantly democrat states too).

    Fact is, excessive land regulation is bad for affordability in the short term and bad for financial stability in the long term.

  8. brc

    I read an interesting article the other day that stated that you’re naturally short housing, because you always need it. And if you don’t do something to cover that short, any big price increases will leave either unable to cover the short (ie, practically homeless) or having to cover at a big cost.

    It is democracy at work to want to hang onto high property prices. It is a very strange set of affairs when declines in either the property market or equities market are met with protest, when a well-bought and well-run business or property will do well no matter what the asset price attached is.

    It all depends where you want your property rights to cut in. For example, I want the right to own my property and do with it whatever I want. But I also want the right to prevent a lot of people moving into my area and ruining it, because I want to defend my property rights. If you don’t understand that phrase, you get my point.

    It’s a very complex interdependent situation that ultimately is good for no-one.

    Back in the day, Australian house + electricity prices were cheap and you could get a lot of bang for your buck. It was only in imported goods we got shafted by protectionist forces.

    In the last 10 years that has all been lost. Houses cost a fortune and keeping the power up to them does as well. Something has gone very wrong.

  9. johanna

    Interesting point, brc. But, while the house/apartment is much more expensive, it is also much bigger with more features, and the appliances and toys that used to be the stuff of movies are very cheap. Perhaps that is part of the trade-off?

    Gouging in the housing sector is a cosy club, with State governments, local councils and the industry all involved. The only difference is that industry players can actually go broke, whereas the governments just put up their compulsory charges if they are short of cash. Mind you, as I mentioned above, there are plenty of shonky players who walk away from their debts and start new companies, leaving subbies and consumers in the lurch.

  10. H B Bear

    MattR – interesting point on funding developer provided infrastructure.

    Developers have to provide underground power, fully irrigated public open space (around 10% of land), fibre-optic cabling,all drainage, bike & footpaths, some civic buildings and ready to build blocks. The full cost of this infrastructure with up to 70+ year life is capitalised on the blocks then funded with 25-30 year mortgages and handed over to state and local government at no cost.

    When we moved to a house in the late 70s it didn’t even have street kerbing. Kerbs, deep sewerage and reticulated gas were all infill programs over the next 20 years. We are currently being asked about undergrounding power with residents paying 2/3rds of the cost or about $8,000 per residence.

  11. dd

    This is one of the biggest policy failures in Australia. As you point out, Alan, it is the result of bipartisan stupidity.

    Liberal Minister Greg Hunt has boasted of how he, following in his father’s footsteps, has thwarted land development in southern Melbourne.

    facepalm.

    What is it with Australians and the demonisation of ‘greedy developers’? Those greedy developers are building homes for people to live in!!! The more you thwart them, the more we pay for our homes.

    Anyone who wants lots of immigration should oppose excessive development restrictions, because we want private players making homes for those new Australians to live in.

  12. Steve of Ferny Hills

    Developers have to provide underground power, fully irrigated public open space (around 10% of land), fibre-optic cabling,all drainage, bike & footpaths, some civic buildings and ready to build blocks.

    We got all that in the mid 90′s and the land was approximately 1/3 of the total house/land cost.

    Now on the Brisbane outskirts, land is approximately 2/3 of the total cost and the size of blocks has almost halved.

    IMO a few large developers are manipulating the market by creating a false shortage of developed land. They also exclude other entrants by negotiating future contracts of sale with owners of acreage (farmers, investors etc). For a small deposit they get effective control of future housing land.

  13. MattR

    dd, not only that, due to idiotic government regulations developers have an incentive to ‘land bank’. Due to both rising land prices and the massive compliance/regulatory cost of developing any peice of land.

    Developers are there to make money, they make money only when they provide people with the one of our most basic needs.

    The unacceptable greed is within the government that has grown fat on stamp duties (based on real estate value) and councils growing fat on rates (based on real estate values). Owners and governments all have an incentive to keep prices high. The rest of us be damned.

  14. Tator

    I was talking to staff working for the developers in the St Clair development here in Adelaide. They were saying that infrastructure costs such as roads, all the extra power infrastructure required including that for a nearby related commercial development, wetlands and parks( which are only needed because they controversially swapped existing parklands for residential areas) are around $60k to $80k per block, and for blocks worth $203k to $475k at close to $1000 per square metre means that people are paying up to 30% of total land cost for infrastructure which in the past was provided by governments and their utilities. Hell, I only paid $60k for my 30m by 10m villa block 11 years ago and now they are charging $203k for a 203 square metre block and paying the cost of my block for infrastructure. No wonder housing is going through the roof

  15. dd

    Regulatory burden is such that there’s now an industry on top of the development industry that helps them work ‘in partnership’ with the various layers of government.

  16. alan moran

    Steve of Ferney Hills
    Doubtless developers would manipulate the market if they could. But it would be illegal to collude and they prefer not to go to jail, recognising that we have a vastly under-employed ACCC which is even trying to fabricate collusion that does not exist.

    More pointedly, there is stacks of land potentially available around our cities even Sydney has – 100 fold the amount that could be developed in any five year period that a developer might contract for. The solution is to release even more – indeed to release the lot and that would drive the land prices down to the levels we see in Texas ansd once saw in Perth and Brisbane and other Australian cities

  17. dd

    The solution is to release even more – indeed to release the lot

    A marvellous suggestion. And not just around the metros either. Let’s go crazy with land release.

  18. johanna

    At local government level it is also related to ‘mission creep.’ Once upon a time, LG was about roads, rubbish and rates. Nowadays, they provide subsidised child care, various social services, hideous ‘public art’, grants to community groups that will hopefully reciprocate with votes, environmental projects, not to mention all those overseas study tours. That means that the shortfall in rates has to come from slugging developers and homebuyers.

  19. Alice

    Alan says

    “Doubtless developers would manipulate the market if they could. But it would be illegal to collude and they prefer not to go to jail, recognising that we have a vastly under-employed ACCC which is even trying to fabricate collusion that does not exist. ”

    Wow Alan – developers are manipulating the market now by builcing reaaaalllly crappy unit blocks that are being signed off by reeeeaaallly crappy private buildfing approvers in cahoots with reaaaally crappy developers and really crappy bruilders.

    Yeah – regulation drought.

    Ok you bastards who agree with no regulation – you buy one of these shit heaps off the plan.

    Guys I have onlt this to say – if it was built post 1990s – dont get sucked in a buy it
    The developer pisses off. The builders piss off. The managing agents call new builders to fix up the crap that the building builders left behind, The body corporate ends up in wars and the end game is for friend of mine who bought off the plan post 1990

    now, as teacher, he cops a 3.5mill repair split amogst all units and he has to take a ten year loan to pay it.

    Off the plan?? – fucking crazy if you buy real estate property that way these days.

  20. Alice

    Most new units built are crap totally.

  21. Alice

    I mean its really nice in here that you want to tell this story that regulation is a bad thing.
    Whats worse is builders building really inferior unit blocks and then buggering off, and relying on “no reglation private certifiers who the builders and their clients actually pay” (read conflict of interest so HUGE that people get away with having crap buildings certified as “fine”)

    Not fine, the hapless idiots who fell for this cosy arrangement between builder and certifier and bought off the ‘flashy new” plan sales spin, have to pay to fix up the builder’s profitmaximising shortcuts later.

    Buyer beware.

  22. dd

    Yet ironically, Alice, dodgy building is happening – as you yourself attest – despite mountains of regulation.

  23. jumpnmcar

    Most new units built are crap totally

    .
    Sorry Alice, that’s bullshit, on my turf ( Mackay at the end of a boom bubble ) only one multi unit block was shit, everyone knew it bar the southern fool the took bad advice on investing.
    Not one local worked on that project and no locals bought in.
    Would you buy a farm ” sight unseen ” ?
    Of course not.

  24. alan moran

    Alice
    the industry is very competitive and you don’t need to buy the ccrappy units

  25. jumpnmcar

    I might add that the price/value is well under local averages.

  26. johanna

    Alan Moran – not so. Canberra is notorious for relatively expensive unit blocks replete with cracking walls, leaking roofs and zero sound-proofing. This is despite a zillion regulations about ‘sustainability.’

    Due to a government-induced housing shortage and government-controlled regulation, buyers do not have anywhere else to go, or redress (unless you count trying to sue a company that went broke just after the building was completed).

    Like I said, we get the worst of both worlds here.

  27. Steve of Ferny Hills

    Alan, developers don’t need to collude. They simply have intersts in common.

  28. brc

    Don’t buy units in blocks with lifts in them. Real estate 101. Not only are your expenses going to eat you alive, your ownership of the land component is a tiny portion of your land price. Remember that buildings are a depreciating item, it’s only the land that goes up in value. That’s why buying the worst house on the best street is sound advice – because you’re basically paying land value with a worn out dwelling on it.

    By all means buy a flash unit in a new block if you want, but treat it like a luxury car, not an asset. Land is where the money is made.

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